Iowa DOT Suggests Taxing Tractor Fuel, Instead of Hiking Gas Tax

Iowa farmers could no longer buy tax-free diesel fuel to operate their tractors and other farm equipment under a list of alternatives offered by the Iowa Department of Transportation to raising the state’s gasoline and diesel taxes.

The loss of the red dyed farm diesel fuel, which would generate $38 million in new tax revenue, is one of the more controversial items on the DOT’s list, which was developed at the request of Gov. Terry Branstad because of strong public opposition to a gas tax increase. Farm vehicles have traditionally been exempt from road taxes on the theory they are primarily driven in fields, not on roads.

DOT officials say more road funding money is needed because Iowa is annually falling about $215 million short of revenues needed to address the most critical repairs on its road system. The money raised from taxing fuel used by farm vehicles would be spent to upgrade aging rural roads and bridges.

However, Branstad told reporters Monday he isn't endorsing any of the DOT's ideas.

"My hope is that we can look at all these different options and alternatives and see if a consensus can be built that would eventually gain bipartisan support in the Legislature — both the House and the Senate — to address the issue of funding for the road use tax fund," Branstad said.

Iowa Senate Democrats have expressed interest in working with Republicans to increase the state’s funding for road construction projects. However, anti-tax Republicans have repeatedly balked at such efforts — which has killed any initiatives in the Legislature to raise additional revenues because Democrats insist such efforts be done in a bipartisan manner. That could easily happen again during the upcoming 2014 legislative session, particularly because many lawmakers will face reelection campaigns in the fall.

The two-page list of revenue alterantives, which was first reported by Lee Enterprises, is being circulated by DOT officials among highway construction lobbyists and a few key state legislators. The list has not been released to the public by the Iowa DOT.

Here are some of the other ideas for raising road construction money:

Replacing the state’s current fuel tax, which varies depending upon the type of fuel, with a 6 percent excise tax on fuel paid at the wholesale level. This would generate an additional $467 million between 2015 and 2015, officials estimate.

Increase the tax on car and truck sales from 5 percent to 6 percent, generating an additional $60 million annually.

Increase permit fees for oversized and overweight vehicles, raising $10 million per year.

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